Can the West break China’s chokehold over critical minerals?

Yangshan Port, China. Credit: AP

A COALITION of 14 nations and the European Commission last month unveiled the Minerals Security Partnership (MSP), a financing network aimed at breaking China’s chokehold on production of minerals such as nickel, lithium and manganese.

Anglo American, BHP and BlackRock were among private sector heavies attending.

It’s the latest turn in an acrimonious trade war to control the supply of renewable energy and the powertrain of electric vehicles (EVs).

Commenting on the partnership, US under-secretary of state for economic growth Jose Fernandez styled it a riposte to a bullying China. Beijing was “following the playbook of the monopolist to drive out competition” with overproduction and predatory pricing, he said.

Chinese companies control 90% of the world’s processing capacity for rare earths and more than half the processing capacity for cobalt, nickel and lithium minerals — all used in EVs. Long before Chinese EVs began to elbow out more expensive competitors in the US market, it was cultivating domestic demand. More than half of all vehicles sold in July in China were EVs, compared with 18% in the US, according to S&P Global.

Speaking at the Financial Times Mining Summit in September, Steele Li, chief investment officer of Chinese state-owned mining company CMOC Group, said China sees the energy transition, of which the electric powertrain is just one component, as a new growth driver, replacing real estate as the nation’s next “big economic theme”.

China has been hunting for critical minerals in emerging markets for decades, while the US is only just recognising the importance of private sector investment, especially in places such as the Democratic Republic of Congo (DRC), which is rich in copper and cobalt.

“The US has never been good at showing up in emerging markets,” Gracelin Baskaran, director of the critical minerals security programme at the Center for Strategic & International Studies, said at the mining summit. When, for instance, Arizona-based Freeport-McMoRan sold its 70% stake in the DRC’s Tenke Fungurume copper mine to CMOC for $2.65bn, policymakers wondered “where was America?”, remarked Baskaran. “Now you’re trying to go back but there’s a certain risk aversion there.”

The Tenke transaction was eight years ago, showing China’s foresight. But things are changing. There are now equity-based US investments in Uganda, Mozambique, Namibia and South Africa, says Baskaran.

Rising tide of competition

The MSP is also helped by China’s recent economic torpor, which has prompted emerging-market governments to seek alternative funds, but this doesn’t mean a free hit for the West. Saudi Arabia is aggressively chasing critical minerals in line with its 2030 decarbonisation goals.

According to Melissa Sanderson, formerly of Freeport-McMoRan and now a director of American Rare Earths, an Australian firm, it has the “financial wherewithal” to succeed and is “very interested in the Congo”. Earlier this month, Manara Minerals, a joint venture between Saudi Arabian mining company Ma’aden and the country’s $925bn Public Investment Fund, was said to be closing in on a $1.5bn to $2bn deal to buy a minority stake in Canadian miner First Quantum Minerals’ Zambian copper and nickel assets.

When the US chose to build the Lobito corridor it also chose to not open up the Congo, not just for China but for other emerging nations – Melissa Sanderson, American Rare Earths

Sanderson spent eight years in the DRC where she witnessed China’s strategy, which combines an appetite for mining risk along with a willingness to invest in infrastructure.

“The US does not … envision making that key investment in infrastructure,” she says. Its one gambit — the Lobito rail corridor linking the southern DRC with the Angolan port — is something of a political mis-hit. “It actually irritated the Congolese because the US chose to bring that line through Angola instead of across [the DRC]. When the US chose to build the Lobito corridor it also chose to not open up the Congo, not just for China but for other emerging nations,” she says.

Funders would prefer less polarisation and point to Rio Tinto’s joint venture with China’s Chinalco in a consortium building the mammoth Simandou iron ore project in Guinea.

“China’s engineering ecosystem is unbelievably effective, whereas we bring knowledge in ESG,” says Rio Tinto CEO Jakob Stausholm. “We have found a structure.”

Alex Pickard, a vice-president at Ivanhoe Mines (which was founded by mining entrepreneur Robert Friedland), welcomes the MSP but is also sceptical. Ivanhoe built Kamoa-Kakula, the world’s third-largest copper mine, in the DRC at a time when only China was prepared to put in the money. “I like the idea of Western governments providing capital but I’ll believe it when I see it,” he says.

“We are not talking, we are doing,” said Li, who added that joint ventures with Western governments and companies are “a no-go”.

When did the West become a “no-go”? Li was asked.

“Just check the acts of government over the past two years,” he replied. Canada banned Chinese inward investment two years ago. There must be people out there who want fair investment,” said Li. There are, and they are mostly in mineral-rich Africa and Latin America.

A version of this article first appeared in the Financial Mail.